Court freezes United Video sale cash

By SIMON HENDERY

The High Court has frozen payment from the sale of franchise chain United Video after a claim that its former owners used liquidation to avoid paying a court-ordered damages bill of $553,000.

The assets of United Video Franchising Ltd (UVFL), including about 80 franchise agreements with store operators around the country, were sold last week to a company controlled by the brother of UVFL's co-owner.

UVFL then had its name changed and was placed in voluntary liquidation.

Six weeks ago, the High Court ordered UVFL to pay former Whangaparaoa video store operators Darryl and Valerie Kirby $553,000 damages because they had been misled about the turnover potential of the business when they signed up with United in 1998.

The Kirbys have yet to be paid and their lawyers have won a High Court injunction freezing UVFL's assets, including proceeds from the sale of the business' assets.

UVFL is owned by Brian and Suzanne Simcox of Wellington.

A sale agreement presented in court last week indicates that the business' assets were sold to a Hamilton-registered company, The Entertainers Ltd, for $350,000.

Mrs Simcox's brother, Bill McPartland, is The Entertainers' sole director and shareholder.

Company Office records show that United Video changed its name last Thursday to Agony Ltd.

Agony was placed in voluntary liquidation by its shareholders on the same day.

The Kirbys' lawyer, Stewart Germann, said yesterday that his clients' case was that Mr and Mrs Simcox had not met their obligations as directors and had transferred the assets out of the business to avoid paying the judgment imposed by the court.

The sale and purchase agreement presented in court for the sale of UVFL to The Entertainers values the company's franchise agreements at $70,000 - a very low price in view of the potential franchise fee income from about 80 stores, Mr Germann said.

Agony liquidator Arron Heath, of insolvency specialists Meltzer Mason Heath, said the money from the sale of the business to The Entertainers was in a solicitor's trust account.

While cancelling the sale agreement was not an option, the liquidators would examine whether the sale price had been reasonable.

If it was decided the deal had been undervalued, the liquidators had the option of going to the buyer and trying to recover the difference between what was paid and what was considered fair value.

Mr Heath said an initial report to Agony's creditors would be prepared within days.

In a judgment delivered in August, Justice Tony Randerson said UVFL's business manager had misrepresented the potential turnover and profitability of the business the Kirbys were buying into when they signed up in 1998.

Although the business manager had claimed that weekly turnover would reach $10,000, it stayed under $5000 and the Kirbys found themselves working long hours to keep the business afloat.

They closed the video store after two years, having amassed significant losses.

Justice Randerson awarded the Kirbys $256,000 for trading losses, $203,000 for lost profits, and $94,000 for the value of the time they put into the business.

At least two other present or former United Video franchisees are taking legal action against the company.